How to Structure a Syndication Deal for Your Fund

hey guys welcome back so in this episode we're going to talk about specifically how to structure a syndication do if you've seen previously our fun launch formula method how you can build a track record through syndication deals [Music] that's great sounds awesome bridger i want to set up a syndication deal but i don't know exactly how to structure it and go about doing this now typically for most people their first what i call fund or first time raising money i would say syndicates are usually the best way to go they're easier to set up you can get things done a lot faster it helps you prove and build a track record for yourself if you don't have a tracker if you like if you're like me people like us right we don't have this 20 years of wall street experience to lean on we don't have this crazy incredible xyz pedigree or nba whatever from some school we have to work and so syndications are a great way to build a track earnest and even if you do have that stuff a syndication also helps you get your feet off the ground and can't get running now when i first started out and i was learning about funds hey something that confused me a lot was the differences between syndications and different types of funds and what they were so you can see on the board right here we have a few different structures that you can choose from now in this video too you can choose right what you want to do up here both of these structures are going to be fund structures okay actual fund and this is your general partner limited partnership structure you guys have seen that before the gp manages the limited partnership with a fund limited partners invest into the limited partnership the general partner manages that fund or limited partnership if you guys have seen me do these boxes before i'll draw them out right you've seen this before this is your limited partnership uh this is your general partner that's you and then all your lps your limited partners will invest into that limited partnership and then that blooming partnership goes and makes investments down here buys up assets and then when those assets make money they flow to the limited partnership and then they split between the general partner and limited partner partners that make sense that's you that's the most common way to set up a fund is this general partner limited partnership structure in a close second a lot of funds are now doing this more and more is an llc type of fund okay this llc fund you've seen this before too just a little recap if you're okay with that okay llc funds have class a shares and class b shares class a shares are your investors and class b shares are your management team they you call them class a because your investors feel great they have class a shares they feel awesome but in reality the class b shares manage and control the fund that's you as the fund manager you're in the class b shares and then finally below we have our syndication deals and i'm going to talk about a lot about this today and this and how to structure these but typically this is just a simple llc limited liability company okay and we'll talk about that structure here now where i get confused when i was confused for a long time was this okay so you have these three you have one two and then three these guys is an llc this is also an llc but just structured differently and they have class a shares and class b shares and they usually have a ppm and an operating agreement and then a general partner partnership they have their ppm private place memorandum and an lpa limited partnership agreement but also the gp right here can also be an llc this entity is it isn't called a general partnership entity it's an llc but it's now titled and labeled as a general partner for limited partnership and that's if that helped a little bit that confused me so much is if you say oh i have an llc for my fund like that doesn't mean anything right it could be option number one the general partner limited partnership it could be the llc class a share class b share fun you have still have a ppm still about the same amount of money to set up very expensive to do those types of funds if unless you follow the fun launch formula number three though is the syndication is a simple llc okay so i'm gonna leave these up here and we'll go we'll kind of be referencing these back and forth throughout today's episode so a lot of people this kind of split between the fund model up top and on the bottom you have syndication deals now if you guys remember back to the fun launch formula okay i'm gonna draw those circles out and the boxes step number one is you find an amazing deal i'm right deal two is you frame the deal out three is you go and pitch investors and then four is you set up your legal docs okay that is the lean this is the best way to launch a fund we have dozens of students launch funds this way that's how i launched my funds a lot of our mastermind mentors followed the same process of pitching finding the deal first framing it out and then pitching investors don't do your legal docs yet to follow this now this breaks up into you can either choose the fund model or syndication model okay so on your legal docs you can decide to do the general partner llc model or the syndication loop okay the syndication loop is essentially the best example i have is like real estate flippers real estate flippers these guys are they're they're masters at syndication deals so what they do is they find a great house they love it they go pitch their investors they follow the fun launch formula they frame it out they pitch investors they get money they set up an llc and the investors put money to the llc they do the deal and then everyone gets paid back out and all the investors get paid out okay and then they'll go find another deal and set up a new llc new investors or maybe old investors gotta renegotiate set up the deal and they do it again the fund model is beautiful because you have to set it up once you raise money once and you can do as many deals as you want up here so you can find the deal frame set up your money once set up your legal docs once and then you can do as many flips and it's called house flips any house flips as you want pretty cool model we have a whole episode fun versus indication that you guys can walk through that i just wanted to recap it for a second so bridger back to our our thesis our topic for today how do i set up the syndication deals what does it look like inside of here let me erase this for a second okay so an llc syndication deal now let's go back to the real estate example we'll use a few different examples for today but let's go real estate for a second okay what you'll do is let's say you found a multi-family property it's got let's call it 10 units in it you'll go find invest you still follow the fun launch for me you find the deal you frame it out you pitch your investors they put money and you set up an llc and everyone putting money in is an equity owner of the llc so imagine like a pie right here okay and you are saying hey i'm going to own 20 of the pie because i did the work i set up the deal i mean i did all of it i'm going to put in a little bit of my money i'll put in probably five percent of the money but the other 15 i'm taking because i'm doing all the heavy lifting and work and then you tell your investors there is 80 available pro rata how much money you put in so pro rata means just percentage of how much money so if you put in half of the money for this deal you would get half of the 80 so you'd essentially end up with 40 equity okay so 40 equity and you are truly they are truly an equity partner in this deal this is not like the class a class b shares up here they are truly equity partners in this deal you own 20 equity and you're let's say your other investors put some money in blah blah blah they they each take like 10 10 each okay the rest of them okay and i'll just put a little squiggly here for the rest of the the investors i'll take 10 percent now they put money in these guys are equity owners and on the documents you have an operating agreement what's called operating agreement which in our mastermind course you guys will have access to and you can download it and tweak it for your purposes they have an operating agreement that says they and you might tweak this but it says that they are full members of the llc the entity they are knowledgeable they understand the business operations they're just as liable as you are and you do that on purpose if they give you money for the purpose and let's say because a lot of people say well can you can the investors give me money in an llc syndication i'm gonna manage the entire money with my 20 percent and pay them out essentially like a fund but not really a fund the if the sec found out you were doing that they would come wacky and say well it really wasn't a sin a true syndication deal it was more like an llc where you had all the voting rights they had no voting rights and you were essentially managing their monies and buying and selling securities now i know there are thousands of syndicates that get set up that way every year and the sec never finds out you know why because the sec doesn't get a complaint the sec will only really investigate you if you hit a you're really big or a massive level or most commonly for guys like us is you get a complaint from your investor if everyone's making money and everyone's happy the sec is like great we up they have plenty of complaints to go follow up on right they don't have enough time to just research every fund only when you get a complaint to the sec is when they'll come follow up so if you're one of your investors if you guys lost money and one of your investors was mad you know i gave my money to bridger he did terrible with it it was awful he lost those money and i didn't have voting rights the sc will come look at that and say well you really weren't running a true llc syndication you were running more of like this step number two and llc class a shares class b shares and therefore you fall under the 1940 investment company act and therefore you are under a lot of scrutiny and regulation from the scene you didn't file your certain documents right you didn't set it up right so that all being said do not bring on new investors in your syndication and say hey you're going to be a silent partner and i'm going to do all the management on paper you can't say that now between the partners the understanding could be hey you're putting your money in i'm going to do most the day-to-day i'm going to do a lot of the operations i'm going to do all that and you're gonna be more of a pass investor so that's that's maybe word of mouth back and forth like that's how it's gonna run but on paper those investors this 40 this 10 these guys are knowledgeable investors they understand they are they are making decisions like you are just as much they understand what is going on inside of this investment and they are just as liable as you are that's how you can set up a syndication where you don't need to fall under investment company act because these guys are all you're potentially owners of a business all putting money in together to go do a deal is that making sense are you guys with me so far so do not make these guys silent partners on paper now if you want to make an understanding between them and they understand that that's okay but when it comes down to it if you're getting sued they have voting rights they can they can do whatever you know they're an equal partner in the business as you are which comes my next point of why syndicates are a little bit riskier to set up syndicates are risky because these investors over here if they don't like you they don't like bridger bridger running the syndicate you know what we have this 10-year department comes i don't like how he's running it they could get together and force you out and push you out they've got big lawyers they've got money behind them obviously they say hey we got a big loss to come your way or you can just step down and resign and usually they can but you out of deals now one way to protect yourself against that on your operating agreement is you do something like this you say hey you have 20 back to the same example you you'll say this no person can be voted out unless you have 81 percent vote it needs to be a super majority vote to vote somebody out so that should protect you if you have 20 equity unless you vote yourself out or somehow lose your equity there's no way that you're kicked out of your own llc however if these guys are big dogs have huge lawyers they're going to ruin your life and they really want you out they might be able to squeeze you out and do an aggressive takeover on the company legally they shouldn't be able to do that but if they're going to run you through it they're going to run you 400 000 legal fees you might just say it's not going to be worth it to go in this battle in this fight and i'll just give up the equity and move out that's why syndications get a little bit scary when you're setting them up now i hope that doesn't deter you from setting up syndication i think syndication deals are a great way to get started and most small time investors this pool of money is usually family friend acquaintance people in your area usually it's it's not a huge big there's not corporate takeover type of people coming together for a syndication on a 10-year apartment complex they hope they can just put money in you'll run the day-to-days and they're going to get a check every six months or every year every quarter every month whatever your your syndicate is telling them they're gonna receive and i've actually seen lots and lots of syndicates work out just great and the investors love it and want to reinvest with you in the future that's how most back to our original example of house flippers how slippers go they do a flip they have equity partner sometimes sometimes they have debt partners with hard money loans they pay brittany back out and they go great that was awesome let's do another one and they go and they go set it all up again they got to renegotiate terms they gotta renegotiate all this value and equity and everything and they do another deal and they pay everybody else and that's why a lot of people call this the hamster wheel of syndications is it turns into a hamster it's a great hamster wheel it makes you some money but it's it's hard to really scale and that's why most people eventually end up scaling through a fund and following the gplp or llc class a share class b share model to scale because you only have to raise money once and you're protected from your investors gpa we talked about in other videos but in a gplp partnership your general partner you can have an investor with a billion dollars invest in your funds and they could call you up i hate you bridger i don't like what's going on i want you to sell stuff early xyz they want to direct funding safe sorry you are a limited partner you are limited in your liability and you're also limited in your decision making we are the the experts the fund managers over this pool of money and we are going to make investing decisions based on what's best for the fund the fund is our client not you as an individual investor and you'll see that in some of our other videos okay so back to the syndication deal this is just one example of a way you could set it up you do the 20 and the rest is available one of our mastermind mentors aaron wagner he does most of his deals he follows this syndicate model however what he does is this he says instead of doing like a 20 or he keeps 15 he goes i'm taking 51 percent i'm setting up the deal and he puts down some money as well it's not like he's not putting any money and he puts a little bit of money in but he says guys i'm taking 51 percent and people would be like whoa whoa what are you doing you're taking 51 that's so much i can't believe you're doing this and some people back at me says well you can either have 49 of something or 100 of nothing right and the returns i've showed you the returns with 49 ownership you're still gonna get a fat return and aaron says well don't worry about what i'm making i'm setting this whole deal up i've brought this to you i'm bringing this deal to you and this is the offer there's 49 available back to our pie chart okay aaron's gonna keep 51 over here and the 49 is available for investors so if you put in half of the money you would take uh 24.5 of the equity and he usually raises money from a handful of different people that sliced up that 49 percent and they're essentially silent partners but still follows those same rules where they're equity partners in the deal and aaron runs the deal and he the reason he does that is so that these guys can't get together and ever sue him he says if if he's 51 owner even with other claws like that's it's very hard for him to be booted out of his own syndication deal and that's the way he's been able to scale doing that now i wouldn't recommend that on your first indication deal it's i think it'd be hard for investors to for a first time person ever doing a deal that you have don't have a tracker for you to say i'm going to take 51 i think would be a little bit aggressive i think closer to 20 15 30 in that range seems more reasonable however it all the best thing about what we talk about it all comes down to your market and if you follow the fun launch formula and you find deals you frame it out and you take it to investors and let's say you pitch this 51 49 and you go pitch 10 investors and nine of them say get out of my office this is a bunch of bull crap but one of them says yeah i'll go for it and they put money in well great like it worked right like it it all comes down to your investor base your marketing base sometimes you'll go pitch you'll go pitch 10 investors and all of them will say no that's too high you okay you go back to step number two you reframe it out and you say guys you know what you're right i was being a little bit aggressive i'm gonna come back and this time i'm gonna do uh 70 and same deal same thing but i want to give you guys more i i you know i think i was wrong trying to take too much i want to give you guys more i'm going to take 30 and 70 is available it's still a great deal you guys said it was a great deal earlier and that's what we're gonna do when you follow the fun launch formula you can use your investors as market testing that's the most beautiful thing about it now as you can see there are pros and cons to syndications versus funds i already talked about a few of them the risks are a little bit higher here but this is probably one of your first deals you've ever done and so it's okay to take a little bit of risk and your investors understand that risk right and that's why we only go after accredited investors or above i don't want to take money from small-time investors keep their money together if i lose it man it's a bad bad deal if i take money from credit investors or qualified clients or qualified purchasers even i lose on a small house flip let's say i lose each person you know 15 grand 20 grand they're gonna be just fine they're those a qualified purchaser losing 15 grand yes they're gonna be mad at you but they're gonna be just just fine they're gonna be able to pay for groceries pay their mortgage or rent whatever they're doing with their life it's gonna be pretty much the same and they probably knew going into it this is a first-time deal this is a first-time fund manager i'm gonna take a chance on her him give them some money let's see what they can do and that helps take a lot of the stress off from me of of managing other people money yes it still is stressful it's a responsibility that i feel that we you know we as fund managers and syndicate managers need to manage money well but it takes a little bit of stress off knowing that if it all goes to pot they're gonna be just fine right if it was my grandma's money i would feel just i would feel even worse right my grandma doesn't don't even have money to live in her retirement right but if it's a credit investor i don't feel as bad and then the other thing to take off that pressure is i always invest right next to my investors i always make sure that i put a and i call it a significant portion of my personal wealth i invest into this deal and fun because i believe in it that much i have skin in the game and i'm not just gonna walk away from this deal in three months if it gets hard because i am invested with x amount of dollars into this deal so i hope that helped with syndication deals drop you know comments questions below if you have them or in our facebook groups if you have questions about syndication deals how to structure them that's typically what you're going to do you can use the operating agreements if you're in our mastermind program you have the operating agreements you have all the legal docs you can use and edit and tweak we have lawyers that can help you out to get this thing structured and off the ground but the nice thing about syndicates is you can do them very fast it usually doesn't take that long to set up funds will take a little bit longer a little more time more lawyers more filings syndicates you i mean you can set up your llc and operating agreement in a couple days and have money going and do a deal fast and that's the beautiful thing about syndication deals especially for first-time fund managers is syndications can help you build that tracker my first fund that i call fund was a syndication deal hope that helped you guys and i will see you on the next episode peace

Channel: Bridger Pennington

Views: 13,433

Rating: 4.9437938 out of 5

Keywords: how to syndicate real estate deals, how to syndicate real estate, real estate, how to start a real estate syndicate, real estate syndication, commercial real estate, commercial real estate investing, investing in real estate, what is real estate syndication, fund syndicate, investing, passive income, private equity, syndication

Id: ounSrSkPJQY

Length: 18min 6sec (1086 seconds)

Published: Fri Jul 31 2020